The Ontario Superior Court of Justice has dismissed an appeal brought by a former lawyer whose licence was revoked by the Law Society of Ontario for her participation in mortgage fraud.
Eldon Horner, a partner at Horner & Pietersma in Morrisburg, Ont., says the case could be an example of what happens when real estate lawyers do not give the time and attention necessary to their files.
“The practice of real estate is not a commodity, it’s a professional service, and if you don’t pay attention to your professional obligations to all of your clients in every transaction, you’re going to find yourself in this type of circumstance and it would appear that this is a lawyer who was at best far too busy and at worst was deliberately being dishonest,” he says.
Overextended lawyers is a growing concern in real estate, says Horner, and the Law Society should be taking proactive measures, as opposed to just reacting with punishment.
“An awful lot of them have started to compete based solely on price, and when they reduce their price to get more business, there’s a tendency to reduce the service and reduce the time spent on the file and that causes situations like this one,” he says.
The court’s decision stated that, in Chin’s first year in practice, she performed between 300 and 400 transactions.
“That’s a very big number and in my opinion you would have a very hard time providing professional services to any clients, especially when you’re new,” Horner says.
Chin had been a lawyer since 2000 and was first was called to the bar in Hong Kong. In 2007, she received her call in Ontario.
In the first transaction, closed in December 2007, Chin acted for the purchaser and the lender, and Chin’s former colleague acted for the vendor, who sold the property for $248,000, after buying it three days before for $110,000.
TD Canada Trust financed the purchase and asked Chin why she had not told them the transaction was a “flip.” Chin replied she knew it was a flip but did not think it was suspicious or that she had to report it, according to the court’s decision.
Later, Chin was interviewed by a law society investigator and said she did not know it was a flip until TD told her about it. Under sworn testimony to the investigator, Chin also said she had a colleague insert backdated documents into the file to reference the flip.
Chin later told the law society she was unaware of the flip before TD told her and denied backdating documents.
In another transaction, Chin knew the purchaser and vendor were related but did not tell her client, the Bank of Montreal.
In that transaction, the purchasers had originally agreed to pay $269,000 with a $5,000 deposit. The agreement was amended to increase both those numbers by $41,000, bringing the price of the property to $310,000, for which the bank provided $278,464. The original $5,000 deposit was already paid, but the vendor and Chin stated that $46,000 was in fact put down, according to the court’s decision.
Because of the size of the deposit credited to the purchaser, the bank’s mortgage advance was more than what was owed to close the deal. The purchaser received $16,900 and did not pay anything to close the deal. Chin did not tell this to her client, the lender.
“That’s the problem. So, there was an artificial price increase. The purchaser buys the property with no money down and gets $16,000 back,” says Bob Aaron, partner at Aaron and Aaron in Toronto.
In another transaction between relatives, the lender — this time the Royal Bank — was made to believe the purchase price was nearly $70,000 more than it was.
“When a lender advances money on a property, they do it based on the credit of the purchaser, the deposit of the purchaser and the purchase price,” Aaron says. “If the deposit or the purchase price is faked by an artificial value increase, which is not substantiated by the market and if it’s a fake flip, then the lender is advancing more money than they otherwise would because they’re basing it on an artificially inflated value.”
Aaron says there is nothing inherently illegal about flipping properties between family members but the nature of the transaction needs to be accurately communicated to the lender.
“If family members flip properties back and forth to each other, that’s fine. But when the bank is misled as to what the real underlying cost is, then that’s fraud,” he says.
The law society began interviewing Chin in January 2013. The first step in law society disciplinary proceedings is the hearing division. The case was then appealed to the appeal division before ending up at the Superior Court.
Based on the facts laid out in the court’s decision, Horner says it is not clear whether Chin was a knowing participant in the fraud or not, as it did not include what fees Chin was paid for the transactions.
“If she’s doing this for $500 a transaction then, in my opinion, she’s not knowingly participating in fraud. But if she’s doing it for $6,000 a transaction, then she’s knowingly participating. It’s not a guarantee,” he says.
Aaron says it is unlikely in a case like Chin’s for a lawyer to get their licence back.
“Under the Law Society Act, it is possible for someone who has either surrendered their licence or had their licence revoked for disciplinary reasons to apply for readmission to the law society. To succeed, they would need to demonstrate that they have been rehabilitated and are presently of good character,” said LSO communications adviser Susan Tonkin.